Prepare general journal entries, Financial Accounting

Assessment Criteria:

Student work will generally be assessed in terms of the following criteria:

1. Preparation of correct journal entries.

2. Accumulation of journal entries into an extract of the balance sheet.

3. Demonstration of understanding of the share and debt issue process.

XYZ Limited had the following Balance Sheet as at 29 June 20x1.

XYZ Ltd

Balance Sheet as at 29 June 20x1

$

$

Assets

Cash

Land

Machinery

Less Accumulated depreciation

400,000

100,000

140,000

250,000

300,000

Intangibles

Patents

Goodwill

50,000

20,000

70,000

Total assets

760,000

Equity

Share capital

400,000 ordinary shares, 60c uncalled (issue price $1)

Paid-up capital - forfeited shares

160,000

50,000

210,000

Reserves

Asset revaluation reserve

Retained profits

300,000

250,000

Owners' equity

760,000

PART A: 20x1 year

The directors do the following as at 30 June 20x1, the annual reporting date:

Revalue land to fair value of $300,000; and Use the asset revaluation reserve to increase the paid-up amount of ordinary shares by 20c (shareholder authorisation not required).

The directors wish to do the following:

Pay a cash dividend of $100,000 from retained profits on the 400,000 existing ordinary shares;

Apply the remainder of the asset revaluation reserve to make a bonus issue of 220,000 fully paid ordinary shares issued at $1; and

Transfer the remaining amounts in retained profits to a general reserve.

Under the company's constitution, the issue of bonus shares must be approved by a general meeting. Approval was given on 1 August and the changes were put into effect and journalised on 15 August.

PART B: 20x2 year

The following takes place during the financial year:

1 July - A disclosure document invites application for 60,000 preference shares with an issue price of $1.20 payable 70c on application and 50c on allotment.

31 July - Applications are received for 95,000 preference shares, together with correct application monies.

1 August - The directors resolve to reject the last received applications for 5,000 shares, and for the remainder to allot shares on the basis of two shares for every three applied for, surplus application monies being taken to the allotment.

15 August - All outstanding allotment monies are received.

PART C: 20x3 year

The following takes place during the financial year:

1 January - A call of 20c per shares is made on ordinary shares which are not fully called.

31 January - All call monies are received except in respect of a parcel of 2,000 ordinary shares

19 February -The directors resolve to forfeit shares on which there are calls in arrears.

REQUIRED:

a) Prepare general journal entries to record the above data for XYZ Ltd for 20x1, 20x2 and 20x3 only.

b) Prepare an extract from the Balance Sheet showing owners' equity as at 3 April 20x3.